September 8, 2010

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Comment:

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    I have to disagree with David Meyers. Just because his business model works for him doesn't mean it works for everyone!

    Leave TJ alone! He doesn't need long term contracts. I don't have contracts, never did and never will. I have a very successful business and have been in business over 23 years now. I have bought 3 alarm companies with no contracts and have been approached numerous times to sell mine. If this is such a bad marketing strategy, (like you say) why then, have I still been approached by numerous companies to sell mine? (including the "big boys") Guess my company is still worth something to someone! I must not have to bad of a marketing strategy. Last year was the worst year for allot of businesses. Not for mine! I was 20% up and it was the best year I have ever had. Hmmmm...I must be doing something right.

    I don't have to hold my customers "hostage" like the "big boys" do. If they want to leave, then let them leave! they will just tell others how good of a company you are and not go around bad mouthing you.. Why would you want to keep them "locked" into a contract and have them not happy with you? In fact, this is how I have even won bids away from other companies like you, and still have 90% of them!     My attrition rate is around 15 per year, mostly due to move outs or death. and I have over 1500 accounts.

    My "customers" don't become just "customers", they become my "friends", and that's what keeps them referring me to others and loyal to my company.

    You say "what is TJ to do if he needs a bank loan to grow his business" I have never had a problem getting a loan, and TJ wont either. They use the receivables or assets as collateral whether you have contracts or not. Also if your a "smart" businessman you shouldn't need many loans. That's how everybody fails these days. They all take out to large of loans they can't pay back. Save your rmr and use it to buy another company, loan free like I do and then you sit back and enjoy the rewards! Regarding the holdback comment.... you don't need a GOD - AWFUL holdback. If you do your research on the company your buying, and get to know the owner, you shouldn't have to worry about a large holdback. 10k is all I hold back, and it's never been a problem.

    So don't "bash" what's working for others. What works for you doesn't have to work for others. You run your business the way you want to, and we will run ours the way we want to.

Greg

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Response:

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    Well Greg, you certainly do have a right to run your business the way you want, and if you believe your business model works for you then great, and it does sound like you have grown a successful business.  You do, however, make a few points that should cause some concern.

    You don't have any contracts.  You are in violation of consumer laws [I am not sure where you are - but just about every state has consumer protection laws - and they require a written contract be given to the consumer, fully filled out].  With no contracts you don't have any contractual protection [exculpatory clause, limitation of liability, waiver of subrogation], and with 1500 accounts you're bound to make a mistake, or even if you don't, one of your subscribers is likely to suffer a loss; you could be named in a lawsuit.  You may have insurance, but without contracts there is likelihood that your carrier will drop you after one loss and that you will have difficulty getting insurance coverage without approved contracts.

    I agree with you that an alarm company is better off not borrowing money and that it grow by saving its RMR and then using that money to buy more accounts, or to invest in more sales help.  But large alarm companies typically do borrow money and grow by acquisition.  That has maintained a stable and viable market to sell alarm contracts and add value to alarm businesses.

    With 1500 accounts, even with an average RMR of $20 a month, you have a nice size business.  You've been approached to sell accounts but obviously those potential buyers have not reached the stage of final negotiations.  If they had you might be in for a surprise.  With contracts you should be able to get 35 times RMR; without contracts it will be more like 20 times RMR.  That's a $650,000 difference in calculation.  Perhaps you can justify that by believing that you would not have grown to 1500 subscribers if you used contracts.  I don't believe that and neither do 99% of alarm company owners.

    If you decide to get contracts - I'll be here.